Alert April 22, 2014

Comptroller Curry Discusses OCC’s Higher Expectations for Large Banks and the Members of Their Boards; States Community Banks Will Only be Subject to Guidelines “in Extraordinary Circumstances”

On April 10, 2014, Comptroller of the Currency Thomas J. Curry presented remarks concerning risk management and related corporate governance issues before the American Bankers Association Risk Management Forum.  Comptroller Curry focused his presentation on the OCC’s “heightened expectations” for risk management and corporate governance, which were described in the January 28, 2014 Financial Services Alert.  He stated that the OCC’s “heightened expectations” program (the “HE Program”) applies exclusively to large, complex banks, i.e., those with consolidated total assets of $50 billion or more (“Large Banks”),” and requires Large Banks to “develop a risk appetite statement that defines both quantitative and qualitative parameters for a safe and sound operating environment at their particular bank.”  The HE Program, noted the Comptroller, also, among other things, calls upon members of a Large Bank’s board of directors “to exercise sound independent judgment,” actively oversee the bank’s compliance program, participate in an ongoing training program for bank directors and conduct an annual self-assessment of the board’s effectiveness.

Comptroller Curry responded to community banks’ concerns that the HE Program would be applied to banks that are smaller than Large Banks by saying that the OCC would only apply the HE Program to a bank with less than $50 billion in consolidated assets “in extraordinary circumstances,” i.e., if the OCC determined that the bank’s operations were highly complex or present a heightened risk.  The financial press has recently reported that the OCC is reviewing the public comments on its proposed HE Program and is expected to make some changes to the HE Program and the related proposed guidelines, which would be adopted as a new Appendix D to the OCC’s safety and soundness regulations that appear at 12 C.F.R. Part 30.  It has been reported by the financial press that changes to the proposed OCC guidelines would likely be focused on clarifying that the guidelines are not intended to apply to smaller banks and on providing some assurance to bank directors that, although they are expected to oversee their bank’s compliance performance, they are not required by the OCC to “ensure” their bank’s compliance with applicable regulations.